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Draghi remarks drive eurozone debt costs to record lows

For eurozone countries borrowing money has never been cheaper. Speculation about further monetary stimulus from the European Central Bank has caused a drop in interest rates and drove the euro to its weakest in a year.

The yield on benchmark German 10-year bonds fell to a record low level of 0.915 percent from 0.939 percent on Tuesday. French 10-year debt also fell to an all-time low, with a yield of 1.249 percent in spite of a surprise reshuffle of the government in Paris on Monday.

Records were also broken in debt-laden Spain and Italy where benchmark bonds fell to 2.097 percent and 2.372 percent respectively.

In addition, the euro broke to an 11-month low $1.3152 in Asian trading before recovering to $1.3180 in European trade.

Speculation about the ECB injecting more money into the eurozone economy pushed funds into bonds before market interest rates fall further. As a result, bond prices were rising and the fixed interests bonds pay fell as a percentage of the higher price.

Last arrow in ECB quiver

Rising bond prices and subsequently falling yields have occurred since remarks by ECB President Mario Draghi on Friday. At a meeting of central bank governors in Jackson Hole, United States, Draghi said the ECB was vigilant about falling inflation in the eurozone. Fresh inflation data due Friday are likely to show a new low of just 0.3 percent, which is way below the ECB's target of close to 2 percent and will further fuel fears of deflation in the currency area.

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Deflation - When everything gets cheaper

An ECB asset-buying program, also known as quantitative easing (QE), might halt the trend toward falling prices. The central bank would offer fresh funding for commercial banks in exchange for securities. The money would flow into the economy via loans, and so boost economic growth, employment and, in the end, the rate of inflation.